joel

QDROphile: I guess we should remove Fideltiy Investments from the well regarded chorus! Joel

Hi QDROphile: Under the 403b regs Plan Termination is added as a distributable event. This will enable the employee to rollover the distribution to any other eligible plan including an IRA. Joel L. Frank Pension Columnist The Chief-Civil Service Leader NYC

The 403(b) Plan of the Teachers' Retirement System of the City of New York is such a plan. Can it open its doors to other school districts in the State of New York?

For a participant that contributed $15,500 via salary reductions for 2007 to which Plan account is the employer's contribution made?

You got that right!!!!!!!!!!

Why haven't you included section 415© in your analysis?

MJB: So according to your understanding of the matter item number 3 listed by the IRS on its website excludes 457 plans notwithstanding the fact that it makes no mention whatsoever of this important fact. I submit that because it does not specify which type of plan it is referring to it is referring to both types of plans because the heading of the list of items: reads: "Top ten issues identified during examinations of IRC 403(b)/457 plans." In item number 1, for example, the Service makes no mention of which type of plan it is referring to so it has to be referring to both because of the wording of the heading. I reach the same conclusion for items 4 nd 10. In your opinion why does IRC section 457(e)(15) supercede section 415©? Joel L. Frank MJB: IRC section 457(e)(15) states: (15) Applicable dollar amount (A) In general The applicable dollar amount shall be the amount determined in accordance with the following table: For taxable years The applicable beginning in dollar amount: calendar year: 2002 $11,000 2003 $12,000 2004 $13,000 2005 $14,000 2006 or thereafter $15,000. (B) Cost-of-living adjustments In the case of taxable years beginning after December 31, 2006, the Secretary shall adjust the $15,000 amount under subparagraph (A) at the same time and in the same manner as under section 415 (d), except that the base period shall be the calendar quarter beginning July 1, 2005, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500. You assert: "Joel: IRC 457(e)(15) specifically states that the max contribution a 457(b) plan from both the employer and employee beginning in 2006 is $15,000 which is increased for inflation to $15,500 in 2007." Please highlight for me where it says that these dollar amounts INCLUDE employer contributions? Thanks, Joel L. Frank

MJB: So according to your understanding of the matter item number 3 listed by the IRS on its website excludes 457 plans notwithstanding the fact that it makes no mention whatsoever of this important fact. I submit that because it does not specify which type of plan it is referring to it is referring to both types of plans because the heading of the list of items: reads: "Top ten issues identified during examinations of IRC 403(b)/457 plans." In item number 1, for example, the Service makes no mention of which type of plan it is referring to so it has to be referring to both because of the wording of the heading. I reach the same conclusion for items 4 nd 10. In your opinion why does IRC section 457(e)(15) supercede section 415©? Joel L. Frank

IRC section 415© says: (The "annual addition" is adjusted for inflation annually. The "annual addition" for 2007 is $45,000. 457(b) plans are clearly included) © Limitation for defined contribution plans (1) In general Contributions and other additions with respect to a participant exceed the limitation of this subsection if, when expressed as an annual addition (within the meaning of paragraph (2)) to the participant’s account, such annual addition is greater than the lesser of— (A) $40,000, or (B) 100 percent of the participant’s compensation. (2) Annual addition For purposes of paragraph (1), the term “annual addition” means the sum of any year of— (A) employer contributions, (B) the employee contributions, and © forfeitures. For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402 ©, 403 (a)(4), 403 (b)(8), 408 (d)(3), and 457 (e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section 408 (k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section 419A (f)(2)) after separation from service which is treated as an annual addition.

Carol V. Calhoun's annually updated chart says: $45,000 for 2007.

"Annual deferral" includes employee contribution and employer contribution. Where do you get the aggregate sum of $15,500 for 2007? The following list comes directly from the IRS website. Notice item 3. ================================================================= EP Examination Process Guide - Section 2 - Compliance Monitoring Procedures - Top Ten Issues - IRC 403(b)/457 Plans Top ten issues identified during examinations of IRC 403(b)/457 plans. 1. Excess IRC 402(g) Contributions, Including Violating the 15-Year Rule Limitations The amount of salary reduction contributions exceeds the annual dollar limitation of $15,000 for 2006 ($15,500 for 2007). The excess may be the result of poor internal controls or failure to aggregate deferrals made to other 403(b) or 401(k) plans. IRC 457 plans do not have to be aggregated with these other plans, but are still found to violate these limits. Violations of the 15-year catch up rule occur where the employee has exceeded the $15,000 lifetime limitation or where the employee is not employed by an eligible employer. 2. Universal Availability, IRC 403(b)(12)(A) Excluding Eligible Employees From Participation, Usually Part-Time Employees That Would Qualify to Participate Eligible employees are not given the right to make salary reduction contributions. Employers often misapply ERISA eligibility and coverage conditions to employees who are otherwise eligible to make salary reduction contributions under IRC section 403((b)(12). 3. Excess 415 Contributions Made Generally, the sum of elective deferrals and employer contributions cannot exceed the lesser of $44,000 ($45,000 in 2007) or 100% of Includible Compensation for 2006. 4. Plan Loans That Violate IRC Section 72(p) Common violations include: failure to make required payments when due, resulting in default of the entire loan; poor documentation; and loans from multiple vendors that in the aggregate exceed the IRC 72(p) limits. 5. Hardship Distribution Failures (IRC Section 403(b)(11)(B)) Common violations include: inadequate documentation that the distribution is the result of a financial hardship and distributions from multiple vendors that in the aggregate exceed the amount needed to relieve the hardship. 6. Unforeseeable Emergency Distribution (IRC Section 457(d)(1)(A)(iii)) Common violations include: inadequate documentation of the unforeseeable emergency, lack of proper internal controls, and distributions that exceed the amount needed for the unforeseeable emergency. 7. IRC Section 457(f) Plan Failures in Operation IRC section 457(f) plans that do not have any real substantial risks of forfeiture for substantial services performed. For example, a 457(f) plan that has non-compete language as one of the risks of forfeiture but in operation that is not likely to ever be applied, such as allowing for voluntary termination then adhering to a short non-compete period and collection of benefits. 8. IRC Section 457(f) Plan Cafeteria Style Benefits IRC section 457(f) plans that allow participants to chose from a number of different types of benefits with a default selection into a 457(f) plan. These types of arrangements usually do not contain a true risk of forfeiture and contain devices such as unrealistic non-compete clauses, rolling risk of forfeiture, flexi-choices and options that do not add a real risk of losing a benefit and appear to vest the benefit to the participant immediately. 9. IRC Section 403(b) Annuity Contract Problems The Annuity Contract is outdated and has not been updated for current requirements such as for IRC 402(g) contribution limitations, IRC 401(a)(9) required distributions, and IRC 401(a)(31) eligible rollover requirements. Also new endorsements not being given out to all annuity contract holders. 10. Ineligible Plan Sponsors of IRC Section 403(b) and IRC Section 457 Plans IRC 403(b) - The organization must qualify as a public educational organization or be exempt under IRC 501©(3). IRC 457 - The organization must be a state or local government or a tax exempt organization under IRC 501©. Some examples of failures are of a charitable hospital with a 403(b) plan being taken over by a local government entity and not terminating the 403(b) plan and of quasi-federal government organizations adopting IRC 457 type plans.

John: Once again you refuse to factor in the 415 limits. Your entire post refers to employee contributions. Stop and think what you are asserting: If the employee puts in $15,500 for 2007 then the employer cannot put in its match.

A buddy of mine is insisting that the combined employee and employer contribution cannot exceed $15,500 for 2007. I have told him he is ignoring the section 415 limits and when these limits are included the combined contribution limit is $45,000. Please tell us that my buddy is wrong. Thanks, Joel L. Frank

If this is the NYCERS ask your client to ask the System for a Benefits Estimate Letter. In addition he is entitled to see the arithmetic calculation. Moreover these Systems have websites with brochures that explain in detail the DB formula. You may want to check it out! Joel L. Frank Pension Columnist The Chief-Civil Service Leader NYC 732-536-9472

A CDSC is a normal fee under the annuity contract or custodial account and has nothing to do with the new transfer/exchange rules. A transfering issuer may not charge a specific fee in order to effectuate the transfer; this is not allowed by the new regs or the old regs for that matter. Joel

Felicia--FYI. You can make the corrections onto the original post just by pressing "edit" and then resubmitting. Joel

Of course it is!

Northwestern Mutual has been removed from the employer's approved list of product vendors. Does this constitute under the Regs a plan termination with Northwestern Mutual so that an eligible rollover distribution may be made by the employer? I believe that just the removal from the approved list is not enough under the regs. I am of the opinion that the employer must first adopt a written 403b plan and list NW as one of the product providers and then formally terminate/remove NW from the Plan Document. What say you? Joel

Appleby: I appreciate the eloquence as well as substance of your answer. I'll bet that you are one of those nice guys that finish first. Joel

mjb: Have you made the connection to the Complaint?

mjb: To read the Complaint log onto benefitslink.com. At the home page click: Daniels-Hall Vs. NEA. Joel

mjb: I just emailed Dan Otter at 403bwise with a request to post the Complaint. Generally here it is. NEA as the largest teacher union in the nation endorses for its membership a 403b variable annuity called Value Builder underwritten by Security Benefit Life. The NEA receives a fee paid by Security Benefit for this endorsement. This product is sold by a commission salesforce so it is subtantially more expensive to the teacher/investor compared to a no-load product which the NEA could have chosen as its endorsed product. But it did not choose the no-load route because no-load firms do not sign endorsement agreeements for a fee. Recognizing this they remained hellbent in using the 403b provision of the IRC as a revenue enhancemet for the Union and have for a fee endorsed the Value Builder product since 1991. So some of the fees paid by the NEA investor in the Value Builder Variable Annuity saw its way to the NEA bank account in Washington DC. Q.: Under ERISA is this a breach of fiduciary duties on the part of NEA to its membership? Does ERISA require the NEA to inform its membership that other 403b products are available to its membership. In essence do ERISA fiduciary rules apply to this endorsement agreement? In my view ERISA does not apply because governmental plans are specifically exempt from ERISA. This is not a Plan that covers NEA EMPLOYEES which is clearly an ERISA Plan. Notwithstanding the NEA endorsement/involvement it still remains a salary reduction agreeement between a public employee ie teacher and his public entity employer/school district. The employer is simple bound to forward the salary reduction to Security Benefit for investment pursuant to the directions of the individual.

Here is an actual Complaint: 403bwise.com/pdf/dan_hall_vs_nea pdf Joel

Is there a possible scenario where a voluntary salary reduction only 403(b) arrangement can come under ERISA?

T/C should have the answer.